Glint of steel in clash over specialty metals

A specialty-metals clause in the Senate defense authorization bill being considered this week has triggered a bitter industry battle.

The Aerospace Industries Association (AIA), with support from the Pentagon and White House, is engaged in a lobbying clash with the specialty-metals sector, which has had strong backing in the House.

After months of intense lobbying, the U.S. titanium industry wrote a letter to Sen. John Warner (R-Va.), chairman of the Senate Armed Services Committee, to urge him to oppose a legislative proposal shopped around by the AIA, which represents contractors large and small.

U.S. titanium producers fear that major defense contractors want to change a law more than three decades old in a way that would help a Russian titanium supplier at the expense of the U.S. industry.

At issue is the Berry Amendment, which mandates that certain materials used in building defense equipment be made in the United States. The amendment was enacted in 1941, and in 1973 Congress adopted a key provision, called the specialty-metals clause, requiring that the titanium and various steel and metal alloys defense contractors use be made in America.

The clause is intended to ensure an adequate domestic industrial base and avoid dependence on foreign suppliers in an emergency, the U.S. specialty-metals industry says.

“The AIA proposal would amend the Defense Department (DoD) Authorization bill to undermine the requirement … that titanium and other specialty metals used in DoD contracts must be produced in the U.S., or certain qualifying countries, primarily our NATO allies,” the leaders of the three American titanium companies wrote in the letter to Warner.

Only four companies in the world produce the quality of titanium required for the Pentagon’s defense systems: RTI International Metals Inc., Allegheny Technologies and Titanium Metals Corp. in the United States and a Russian company, Verkhnaya Salda Metallurgical Production Association (VSMPO).

VSMPO is a former state-owned enterprise and by far the biggest supplier in the world, with capacity greater than the three U.S. companies combined, the representatives of the U.S. titanium industry wrote.

“It is VSMPO that would be the immediate beneficiary of the AIA proposal, and VSMPO that has been targeted for acquisition by the Russian Government,” the leaders of the U.S. companies wrote.

No modern airplane can be built without titanium. Military aircraft depend on titanium because it is light and strong. Titanium is one part of the U.S. specialty-metals industry, which has also been fighting to keep the status quo.

“The net result [of the AIA amendment] would be that the U.S. military will become dependent on the Russian Government for titanium,” the letter states.

Because companies such as Boeing were interested in offset agreements to buy supplies from Russia in exchange for selling their products there, they taught the Russians how to make high-quality titanium, a critic charged. Boeing is competing for a lucrative contract with the Russian airline Aeroflot. Boeing opened a technical research center in Moscow in 1992 and a design center in 1998.

Russia reportedly already supplies half of the titanium used in Boeing’s civil aircraft. Boeing’s biggest Russian partner is VSMPO. Its production has been expanding fast, driven by additional orders from EADS and Rolls-Royce.

The AIA has been working with the Pentagon to craft an amendment to the defense authorization bill to exempt commercial items from the Berry Amendment, such as global positioning devices for soldiers in Iraq. The AIA-crafted amendment would also allow a small amount of non-Berry-compliant material below a certain sum to make it into defense equipment.

The amendment would also push for what is known as a “basket approach” to allow the defense industry to buy commercially available titanium as long as it also buys the necessary percentage of Berry-compliant material without having to use it in weapons systems.

AIA President John Douglass has said that the organization is not attacking the main thrust of the Berry Amendment.

“We can’t find a situation where we can no longer buy screws and bolts from the commercial market and have to have a special run of a nut or bolt or screw just for the 50 tanks that we build,” Douglass said in an interview last month.

But the specialty-metals industry argues that the Pentagon created the problem by closing an eye to compliance in the past. This year several large and medium-size contractors have run into problems with the Pentagon after disclosing that some of their suppliers have used foreign-produced specialty metals.

The U.S. titanium-industry leaders argued in their letter to Warner that the proposal was not subject to congressional hearings or a markup. It “is a serious overreaction to relatively minor issues that can be readily resolved,” they said. The Senate Armed Services Committee rejected a similar proposal earlier this year.

“The Senate Armed Services staff recognized the intent behind the issues that were brought up, and they are looking at drafting their own forms of the amendment,” an industry source said. The panel will adopt its own version of AIA’s three main issues and make them part of the manager’s amendment, the source added.

The House in its version of the 2007 defense authorization bill protected and reinforced the Berry Amendment but attracted opposition from the White House.Meanwhile, the Senate Armed Services Committee marked up legislation that included a provision that would leave only titanium and nickel as part of the Berry Amendment specialty-metals clause and take out all other metals. That provision sent shudders through the specialty-metals industry.

The titanium industry has been working not only to oppose the AIA amendment but also to change the panel’s provision when the bill gets to the floor.